TMI Blog2017 (3) TMI 1934X X X X Extracts X X X X X X X X Extracts X X X X ..... find that during the year under consideration the assessee company has not earned any exempt income and has not claimed any such exempt income in the return of income therefore as per our considered opinion the provision of section 14A are not applicable. - Decided in favour of assessee. Unsecured loan u/s. 68 - identity, genuineness and creditworthiness of the unsecured loan providers not proved - HELD THAT:- We have noticed that in the case of the assessee, the confirmation with the name, address, copy of ledger account, copy of balance sheet and profit and loss account, copy of income tax returns and computation of total income in respect of all the parties were filed before the assessing officer. As perused the judicial pronouncement in the case of CIT-Rajkot v Ayachi Chandrashekhar Narsangji [ 2013 (12) TMI 372 - GUJARAT HIGH COURT] held that in case the loan amount has been repaid by the assessee in the immediate next financial years that indicate that the department has accepted the repayment of loan without proving into it. We have also observed that it was undisputed fact that the assessee had repaid considerable amount of the loans to the lenders in the next year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed supra in this order. Decided in favour of assessee. - Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member For the Appellant : Shri Sitaram Meena, Sr. D.R. For the Respondent : Shri Rasesh Shah, A.R. ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This assessee s appeal for A.Y. 2012-13, arises from order of the CIT(A)-II, Surat dated 20-01-2016 in appeal no. CAS/II/202/2014- 15, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The assessee has raised following substantive grounds of appeal:- 1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of income-tax (Appeals) has erred in confirming the action of assessing officer in making disallowance of Rs. 22,12,957/- u/s. 14A of the IT. Act. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making addition on account of unsecured loan of Rs. 60,00,000/- for alleged unexplained cash credit u/s. 68 of the IT. Act. 3. On the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Rules, 1961 and determined the total disallowance u/s. 14A of the act to the amount of Rs. 22,12,957/- as worked out at para 4.5 to 4.7 of the assessment order and added to the total income of the assessee. 5. Aggrieved against the impugned disallowance made by the assessing officer, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the ground of appeal of the assessee on this issue by observing as under:- 6.1.1 I have considered the assessment order as well as the submissions of the appellant. The Grounds of appeal- Ground No, 1 pertains to making an addition of Rs. 22,12,957/- in the total income by way of disallowance of expenses, invoking provisions of section 14A of the Act. The AO found that the appellant has made investments in equity share of Rs. 2,95,00,000/- on 31.03.2012 under the head short term investments. These investments were made in two relative concerns during the last three years i.e. as 31.03.2010 and 31.03.2012. The appellant had shown interest expenses under finance cost borrowings for AY 2012-13 of Rs. 79,69,711/-. The AO found that the appellant did not provide details regarding any expenses being incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omposite and individual business which had elements of both taxable and non-taxable income, the entire expenditure was deductible. If business was divisible, the principal of apportionment of expenses was applicable and the expenditure apportioned to the exempt income or income not eligibles to tax was not allowed as deduction. While introducing section 14A intention of the legislature was that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The basic object of section 14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. 6.1.4 In the case of Godrej Boyce Manufacturing'Co. Ltd. Vs. CIT 328-ITR 81 (Bom) the Hon'ble High Court of Bombay has observed that the following principles would emerge from section 14A and the decision in CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC): (a) the mandate of section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 189 of 2011 vide order dated 22nd January, 2014, 105 DTR (Ker) 299(2014), it was held that provisions of section 14A of the IT Act enables the AO to disallow expenditure incurred by the assessee relating to income/which does not form part of total income under the IT Act. The sub section (2) to section 14A of the IT Act was introduced w.e.f. 1st April, 2007 and it provides how the disallowance has to be worked out. This procedure-has been prescribed under rule 8D as well, wherein sub-sections (2) and (3) of section 14A of the IT Act are only of a clarificatory nature and do not amount to the charging provision. 6.1.9 If the appellant has made investment in shares and the appellant is not trader in shares then appellant which earns the income from shares is only 'dividend' and since the 'dividend' is exempt therefore, section 14A is applicable. The AO has observed in the course of assessment proceedings that there were no interest free funds available with the appellant and the investment in shares have been made out of the interest bearing funds. The appellant has made/investments on which no income has been brought in the books of account of the company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (2) shall also apply in relation to a case where an assessee claims that no.expenditure has been incurred by him in relation to income which does not form part of the total income under this Act The reasons for the above amendment were explained in explanatory statement for the Finance Act, 2006 under Circular No. 14/2006, dated 28-12-2006 in para 11. It.is reproduced hereunder:-'11. Method for allocating expenditure in relation to exempt income. 11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income under Chapter-IV of the said Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act in the existing provisions of section 14A, however, no method of computing the expenditure incurred in relation to income which does not form part of the total income has been provided for. Consequently, there is considerable dispute between the taxpayers and the Department on the method of- determining such expenditure. 11.2 In view of the above, a new sub-section (2) has been inserted in section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee with regard to correctness of the claim of expenses or assessee claims that no expenditure has been incurred 6.1.13 Since, the appellant has made investment in shares, the income from which would not form part of total income, the expenditure incurred, being interest on borrowed funds, in relation to such income has to be disallowed. In view of the above discussion, I am of the considered-opinion that the AO had rightly disallowed the proportionate interest expenditure relating to investment in shares u/s. 14A of the Act. Accordingly, the disallowance of interest of Rs. 22,12,957/- made by the AO u/s 14A of the IT Act is confirmed and the grounds of appeal is dismissed. 6. We have heard the rival contention and perused the material on record. We have gone through the submission of the assessee that the said investment was made by the assessee company out of noninterest bearing funds comprising share capital reserves of Rs. 452.14 lacs as against investment of Rs. 295 lacs. The assessee also submitted that company had made investment in the shares of private limited company and the dividend income to be earned in future would not be tax free in case of pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve fixed assets. Ankit Images Pvt. Ltd. The assessing officer has examined return of income, audit report and the bank a/s statement of the company. The assessing officer stated that this company was showing meager income, no electricity expenses were claimed and company does not have any fixed assets. The assessing officer stated that these data prove that the companies were not having creditworthiness to provide the unsecured loan to the assessee. The assessing officer concluded that assessee failed to justify identity, creditworthiness and genuineness of Rs. 60 lacs unsecured loan, therefore, she added the unsecured loan along with interest expenses of Rs. 5,39,057/- to the total income of the assessee. Aggrieved against this impugned addition, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has sustained the addition made by the assessing officer. The relevant part of the observation of the Ld.CIT(A) is reproduced as under:- 6.2.15. The identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the nature and source of the credits cannot be entertained and held by the Assessing Officer as satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duty taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank Cheques and paid through the process of banking transaction but that itself is of no consequence. The overall circumstances is to be taken into consideration and in the present case, mere transactions being made through banking channels do not make the transactions genuine as in the instant case where the bank accounts of the lenders do not show any genuine activities as discussed in the aforesaid paras. 6.2.17 In another judgment of the Supreme Court in Vijay Kumar Talwar Vs. ClT of 2011) 1 SCC 673 the same principle was applied in the following observations: . ...All the authorities below, in particular the Tribunal, have observed-in unison that the assesses did not produce any evidence to rebut the 'presumption drawn against him under Section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the assesses in his books of account. In the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or itself, there is no question of an Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys, even then the onus lay on the, assessee to further establish certain things because non-production of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced. 6.2.20 It was noticed, as mentioned above that, on the verification of the return of income filed by these persons/lenders, that they all have meager means of income with no capacity to be able to invest the amounts as loans. It is not the case where the AO has not pursued - the matter any further and did not examine the source of income of these lenders to find out whether they were creditworthy or were such who could give the loans, Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, the said evidence being unrebutted, can fee used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably, 6.2.21. The onus of establishing the nature of a cash credit is on the assessee and if he fails to offer a reasonable explanation, the AO may presume that it represents an 'income receipt'. So too, the onus of proving that such income receipt did not fall under the head 'income from other sources' was on the assessee. If the assessee did not place any satisfactory material before the AO to enable him to arrive at a contrary conclusion, the AO might presume that the cash credit fell under the head 'Income from other sources'. The presumption that an unexplained cash credit is an 'income from other sources' are presumptions which flow naturally from the circumstances that all facts which can establish the nature and source of the cash credit are peculiarly within the knowledge of the assessee. It may be that the onus of displacing the presumptions may be heavy in some cases and light in others, depending on the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the decision of the final fact finding authority is made conclusive law. 6.2.24. The Hon. Supreme Court in case of D. Bhoormali (AIR 1974 SC 859) the department is not required to prove its case with mathematical, a demonstrable degree for in all human affairs, absolute certainly is a myth and as proof all exactness is a fake. The absolute proof being unattainable, the law accepts for it probability as a working substitutes in this work- a- day world. The law does not require establishment to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may form on the basis of existence of facts. 6.2.25. The onus to prove the genuineness of the transaction lies upon the assessee which has upheld in the following cases also: * CIT v. W.J.Walker and Co. [1979] 117 ITR 690, 694 (Cal); * Sajan Dass and Sons v. CIT [2003] 264 ITR 435 (Delhi); * Sumati Dayal v. CIT [1995] 214 ITR 801 (SC); and * JaspalSingh v. CIT [2006] 290 ITR 306 (P H). * Dhanalaxmi Steel Re-rolling Mills 57 ITD 361 (HYD.) 6.2.26. The Hon. ITAT, Kolkata Bench in the case of [2014 ] 52 taxmann.com 305 (Kolkata -Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e placed on the copies of various documents filed to support; such claim of loans and addition of Rs. 60,00,000/- is hereby confirmed and grounds of appeal is dismissed. 8. During the course of appellate proceedings before us, ld. counsel has stated that ld. CIT(A) has erred in confirming the addition on account of unsecured loan of Rs. 60 lacs u/s. 68 of the act without considering the supporting detail and information furnished by the assessee during the course of assessment proceedings before assessing officer and during the course of appellate proceedings before ld. CIT(A) . Ld. counsel has also referred the different pages of paper book submitted during the course of appellate proceedings showing information regarding written submission filed before ld. CIT(A) and before assessing officer, confirmation of all lending companies, relevant bank statement of all the lending companies, ledger a/c of lenders, letter filed by the lenders in respect of notice u/s. 133(6) of the act, acknowledgement of return of income of lending companies, audit report along with audited financial statement of all lending companies, sanction letter obtained from SBI for SLC Credit facilities, mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin a period of two to three months. The due date of repayment was nearing and the company was not having sufficient balance with it to repay the said SLC limits availed from the said Bankers the SBI. The company was in need of urgent funds to repay the SLC and trying to explore the possibilities to get the financial assistance from outside parties. One of the relatives of the Directors, Shri Surendra Kumar Bengani staying in Kolkata since last many years. They approached them for financial assistance so as to meet the urgent need of the business, Shri Surendra Kumar Bengani the son of Father's sister of the Directors (Cousin Brother as son of Bhuva) was requested to arrange loans 'from private persons on behalf of the company. The said cousin brother Shri Surendra Kumar Bengani was having personal relations with Shri Vikas Kumar Badjatya one of the directors of the lending .companies and on personal persuasion and contacts of the said cousin brother of the directors they agreed 'to lend the funds to the appellant company. We have noticed that during the course of appellate proceedings the Ld. CIT(A) has issued directions u/s 250(4) of the Act on 04.12.2015 to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also provided to the Ld.CIT(A). 7. It was further submitted by the assessee to the Ld.CIT(A)that cheques/drafts issued and posted by the Income Tax departments for refunds to the depositor companies on the same addresses were duly served. The assessee had also provided the supporting evidences. 8. The assessee had also informed that the lenders were duly registered with the Department of Profession Tax of West Bengal. The said registration had been granted by the West Bengal Government on the same address. It was also submitted by the assessee that the receipts of the said Shop and Establishment renewal fees are also reflecting the same address as room No. 124A, 53A Surya Sen Street, 1st Floor, Kolkata, West Bengal. We have also perused the judicial pronouncement in the case of CIT-2 v.D H Enterprises(2016) 72 taxmann.com.91(Gujarat High Court) in which it was held that the solitary reason of not serving of summons cannot be relied only by ignoring the other relevant material produced by the assessee. The relevant part of this judicial pronouncement in the case of CIT-2 v.D H Enterprises(2016) 72 taxmann.com.91(Gujarat High Court) is reproduced as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved, that is, it is not accepted but circumstances do not lead to a reasonable and positive inference that the assessee's case is false, the explanation cannot help the department because there will be no material to show that the amount in question was the income of the assessee. The Commissioner (Appeals) was of the view that all the transactions, that is, advances received were through bank only and that the Assessing Officer should have verified these transactions with the relevant banks and should have made further inquiries in this regard, which he has failed to do so. He further took note of the fact that in most of the cases, the customers were filing their returns on regular basis and that during the appellate proceedings, the assessee had produced copies of the returns of income for assessment year 2009-10 for verification in support of his case. He further observed that it was not the case of the revenue that any evidence had been brought on the record which even remotely indicated that the money originally belonged to the assessee and it had returned back to the assessee again. In the light of the above findings of fact recorded by him, the Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal infirmity so as to give rise to any question of law, much less a substantial question of law warranting interference. We have perused the above judicial pronouncement and after considering the material on record, we have noticed that assessing officer and Ld.CIT(A) has not elaborated and described in detail the complete facts pertaining to not serving the notices upon these lenders. The Assessing Officer has not even made reference to any particular witness in whose presence the process server had tried to locate the alleged lenders. We have also considered that the assessing officer and the Ld.CIT(A) had not rebutted the supporting material and evidences furnished during the course of assessment proceedings and appellate proceedings as elaborated in this order. We have further perused the judicial pronouncement in the case of CIT v Apex Therm Packaging P. Ltd ITA no.1070 of 2013 vide which the Hon'ble High Court Gujarat held that in case full particulars, inclusive of the confirmation with the name, address and pan number, copy of the income tax returns, balance sheet, profit and loss account and computation of the total income in respect of all the creditors, len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated that the money originally belonged to the assessee and it had returned back to the assessee again. We observed that during the assessment proceedings the assessee had furnished the details of the persons from whom loan had been received stating, name and the address, PAN, copy of account confirmation, copy of acknowledgement of ROI, copy of relevant portion of their bank account and the copies of the audited annuals accounts. Further we have noticed that the assessing officer had issued notices u/s 133(6) of the act and all the notices were duly complied by the lenders. Thus, from the facts noted hereinabove, it is evident that the assessee had produced all relevant details in its possession, namely, names, permanent account numbers, income tax returns, and bank statements of all the investors. The lower authorities have made findings mostly on the basis of assumption based on own analysis without disproving the supporting and evidences produced by the assessee as elaborated supra in this order. After considering the above stated facts and judicial findings as per our considered opinion the Ld. CIT(A) is not justified in sustaining the addition made by the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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